The collapse in value of the pound is attracting overseas investors to the UK, after investors using sterling enjoyed positive returns in foreign markets last year.

Property agency DTZ published its European quarterly report last week, which said: “Overseas investors in particular are circling the UK market, where the depreciation of sterling has reinforced the perceived improvement in value brought about by relatively rapid yield correction.”

The focus of foreign investors on the weak pound comes after the Investment Property Databank published its 2008 index for the European markets, including the UK, last week. Across the continent, it reported a -4% total return over the year, measured in local currencies.

It was a sharp drop for the markets, which had returned a positive 6.7% the year before. But the analysis showed that currency movements had a huge impact on investor returns.

Sterling investors enjoyed a positive return of 16.7% over the year, while yen investors suffered a 31.5% drop in the value of their holdings, thanks to the weakening of sterling and the appreciation of the yen respectively. Euro investors suffered a loss of -11.4%.

John Slade, head of direct investment at DTZ, said the correction in UK yields was the main reason for the return of foreign interest.

But he added that, in effect, the weakening pound meant that if a dollar or euro investor bought a five-storey building, the top floor would come free – though an investor’s interest would depend on the assumption that the pound would strengthen again.

He said: “It is certainly encouraging people to invest in the UK.”

Penny Hacking, head of the cross-border team at property advisers King Sturge, said US, German and Middle Eastern investors were being attracted by the weak pound and the drop in prices, and said the trend would shift to Europe.

She said: “I think the euro will weaken a lot by the end of the year, so US investors who are focusing now on the UK will focus more on Europe, where capital values are also about a year behind the UK.”

The DTZ report said the Swedish market looks attractive, thanks to the 15% depreciation of the krona against the euro over the past 12 months. Hacking said she had advised a client on a large Norwegian portfolio last year, and the client has made a profit on the currency hedge on the investment.

However, she said that a lack of ready finance in the Scandinavian markets, as well as the cost of hedging local currencies, would make it prohibitive for foreign investors.